What’s yours is mine, and what’s mine is the tax man’s
Full Court of Federal Court rebuts presumption of advancement – Commissioner of Taxation v Bosanac  FCAFC 158
A recent decision of the Full Court of the Federal Court of Australia has set a low water mark in rebutting the presumption of advancement. The decision has significant implications for professionals and businesspeople who have structured their affairs for asset protection, as well as bankruptcy trustees seeking to recover assets.
The decision, of Justices Kenny, Davies and Thawley, involves the reconciliation of two competing and mutually exclusive presumptions that might arise from a similar set of facts; namely, where assets are held legally by one party even though another party has contributed to the purchase of the property:
a) a presumption of a resulting or presumptive trust; or
b) a presumption of advancement.
A presumption may arise at law in circumstances where, if certain underlying facts are proven, then the court will presume that other facts exist. Such presumptions are rebuttable by evidence to the contrary.
Presumption of trust
A declaration of trust (a resulting or presumptive trust) may be presumed in various circumstances, including where two parties contribute to the purchase price of a property but legal title to the property is put only in the name of one of them. Similarly, one party might contribute to the purchase price but title is in the name of the other. Equity presumes that there was a declaration of trust because it presumes it was intended that the person holding legal title would do so beneficially for both contributors.
It is common among businesspeople and professionals for the domestic partner to hold substantial assets, such as the matrimonial home, in their name solely. There are some taxation benefits to this (where there is a disparity of income), as well as asset protection benefits. A presumption of trust is therefore a useful tool for creditors and bankruptcy trustees to attack assets not held in the name of the debtor, especially in circumstances where evidence of the actual intention of the parties may be difficult to ascertain.
Presumption of advancement
A presumption of advancement operates to prevent a resulting trust from arising because the relationship between the parties provides a reason against presuming a trust. That ‘certain relationship’, controversially, is that of a husband purchasing assets that are held solely in the name of the wife, or a father purchasing assets in the name of a child. The presumption operates on the hypothesis that because the relationship exists between the parties, the benefit provided by the husband to the wife (or father to child) is assumed to have been provided by way of an ‘advancement’. The nature of the relationship explains the gift.
The doctrine has been viewed as controversial as it excludes other, similar, types of relationships, including where the wife buys property that is held by her husband, a mother for her child, unmarried domestic partnerships and same-sex marriages (distinctions the High Court called ‘not altogether satisfactory’ but nonetheless did not overturn in Calverley v Green (1982) 150 CLR 242).
A husband and wife had purchased a property together, for use as their matrimonial home. They had used funds from a joint loan account to pay the deposit, and a mortgage jointly in both names to pay the balance of the purchase price. However, the property was solely in the wife’s name.
Following an audit by the ATO, the husband was found to be liable for substantial taxation debts, and the Commissioner obtained judgment against him for that debt. The present proceeding was an appeal from an unsuccessful application by the Commissioner for a declaration that the husband had an equitable interest in the property.
The husband and wife did not give evidence at trial. The above factors were essentially the totality of the evidence before the court.
In the circumstances, the court was concerned with presuming the parties’ intentions as to the property; in particular, whether it was intended by the parties that the husband held an equitable interest in the property.
First instance decision
The trial judge found that the presumption of advancement arose and had not been rebutted, and therefore the property was not held beneficially for the husband. This was notwithstanding that he accepted that the husband had had the benefit of living in the matrimonial home, had contributed to the deposit and had assumed a considerable personable liability by way of the mortgage. He also placed weight on the fact that the husband and wife had owned other assets separately, and that the husband was a sophisticated person of business (so he would have understood that the name in which real property is held is of significant consequence in almost all situations).
The factual findings of the primary judge were not in dispute; what was disputed was whether the court should have, relying on those facts, presumed an advancement. The Full Court inferred that because the husband and wife had purchased the property as their matrimonial home and moved in together shortly thereafter, that at the time of the purchase they intended that the property would be for their joint use and for the benefit of them both, even though the property was in the wife’s name alone. The court placed weight on the fact that the deposit was from a joint loan account, and the husband had accepted substantial personal liability for the mortgage and effectively each contributed half of the purchase price.
The Full Court found that it was the intention of the parties that 50% of the property was held beneficially for the husband. Contrary to the trial judge’s finding, the Full Court was of the view that the separate ownership of other assets was irrelevant, and that a finding that the husband was a sophisticated businessman was not available on the evidence.
If a husband has contributed to the purchase of an asset, it may not be sufficient to protect that asset from creditors of the husband merely by the asset being owned by the wife. More evidence of the parties’ intentions is necessary before a court will find that there has been an advancement, despite the foundation of the presumption being in the relationship of husband and wife. For example, a contemporaneous deed poll given by the party not going on the title, in favour of the party who is, stating that the property is exclusively owned by the party who holds title, might assist.
Similarly, creditors and bankruptcy trustees should cast their nets widely, and consider assets not held in the debtor’s name when looking at recovery options.
If you have any questions about this article, please get in touch with the author or any member of our Litigation & Dispute Resolution team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.